NEW YORK — Nine companies and organizations charged with servicing the student loans of some 30-million borrowers have repeatedly failed to do their jobs for years and the Department of Education has further failed to hold them responsible, according to a new report.
The report, from the Department of Education's Inspector General's office, indicates some borrowers have not been getting the guidance and protection they need as they have sought the best plan for paying off their student loans. Overall student loan debt in the U.S. stands at $1.5 trillion.
The Inspector General's report was specifically focused on the operations of Federal Student Aid, a part of the Department of Education that oversees student loans, from January 2015 to September 2017. FSA is responsible for overseeing student loan servicers to ensure they are in compliance with their contracts with the federal government.
Little Corrective Action
But the FSA has not been doing that, with the IG’s report saying at one student loan servicer problems were found six-out-of-10 times it reviewed loans, yet the FSA ordered no changes. The IG said it found similar problems at other servicers with a similar lack of any corrective action.
"In most cases ... FSA did not take actions stronger than correcting the accounts of those affected (and) rarely did the FSA require the servicer to conduct a full file review," according to the report. "FSA also rarely penalizes servicers for recurring noncompliance."
In response, the FSA said it disagreed with the report's conclusions, but it also agreed to follow its recommendations for improving oversight. The FSA further said the financial penalties have grown to $2 million since September 2017. The Inspector General responded by saying that amount is still a fraction of the $1.7 billion FSA paid student loan servicing companies between 2018 and 2019 for managing loan accounts.
Outsourcing Servicing
FSA outsources student loan accounts to a handful of private companies and state-run loan authorities, the largest of which are Navient, Great Lakes Educational Loan Services, Nelnet Servicing and the Pennsylvania Higher Education Assistance Agency. The companies are paid a monthly fee per account and are responsible for making sure borrowers pay on time, and that the borrower is in the correct repayment plan.
The IG’s report highlighted two recurring problems in particular: Loan servicer representatives failed to inform borrowers of all their repayment options, and they miscalculated a borrower's monthly payments under certain types of repayment plans.